# Should You Sell Agree Realty Corporation (NYSE:ADC) At This PE Ratio?

Agree Realty Corporation (NYSE:ADC) is trading with a trailing P/E of 22x, which is higher than the industry average of 20.1x. While this makes ADC appear like a stock to avoid or sell if you own it, you might change your mind after I explain the assumptions behind the P/E ratio. Today, I will break down what the P/E ratio is, how to interpret it and what to watch out for. View our latest analysis for Agree Realty

### Breaking down the Price-Earnings ratio

P/E is often used for relative valuation since earnings power is a chief driver of investment value. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.

Formula

Price-Earnings Ratio = Price per share ÷ Earnings per share

Price per share = \$45.06

Earnings per share = \$2.044

∴ Price-Earnings Ratio = \$45.06 ÷ \$2.044 = 22x

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Ideally, we want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as ADC, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use below. Since similar companies should technically have similar P/E ratios, we can very quickly come to some conclusions about the stock if the ratios differ.

ADC’s P/E of 22x is higher than its industry peers (20.1x), which implies that each dollar of ADC’s earnings is being overvalued by investors. Therefore, according to this analysis, ADC is an over-priced stock.